Introduction
Good morning ladies and gentlemen, and thank you for allowing me to address the Merrill Lynch Australasian Credit conference.
As one of the worlds biggest financial organisations, and one with a real commitment to this country, I am sure this conference is a most appropriate forum for me to discuss Australias future as a place for investment and as a centre for global financial services.
Ladies and gentlemen, Australia is in the international spotlight as never before.
As the new millennium dawns, it is on our shores that all eyes will focus as we celebrate the centenary of our Federation and the staging of the Olympics.
There has arguably never been a more important time in our history.
And we have never been so ready to grasp the opportunity presented, to showcase Australia to the world as a country that has truly come of age.
And as we showcase Australia as a centre for global financial services, we can boast such long-held advantages as a stable democratic system, a skilled and multilingual workforce, secure financial markets, a strong regulatory regime and an attractive quality of life.
Now, as a result of the Howard Governments prudent financial management, we can add to those credentials a powerhouse economic performance.
This performance has been so strong that Fortune Magazine referred to Australia just two months ago as "the miracle economy of the world financial crises".
This has not occurred by accident.
It is due, in no small part, to the economic reforms the Howard Government has rolled out over the past three years.
But we are not about to rest on our laurels. There is still much work to be done in cementing Australias place as a centre for global financial services and as destination for investment.
And like any good construction the foundations must be right.
My early view is that we have the foundations right. And if they are not perfect, then at least we have recognised the problems and are setting about getting them fixed.
Sound financial markets
Australias financial markets are liquid, transparent and well-run, and offer investors a range of sophisticated products.
We have developed a local capacity to compete internationally and are very competitive in areas such as financial futures and options. In fact, Australias markets have depth and liquidity. Whether it be in equities, bonds, synthetics or managed funds we continue to punch above our weight.
The 1998 Australian Financial Markets Association report survey makes the point very clearly.
In the twelve months to July last year total turnover in the Australian financial markets was $A34,601 billion, up 13 per cent. The survey also found:
- a 34 per cent increase in spot $A transactions,
- a 70 per cent increase in currency and options turnover,
- a 21.6 per cent boost in share market volumes,
- a 29 per cent increase in repo turnover, and
- a whopping 197 per cent rise in $A basis swaps.
Also, the non-government debt market recorded a 28 per cent rise in volume driven by dramatic growth in bank securities, which rose 125 per cent, and mortgaged-backed securities, which increaedincreased 78 per cent.
Our markets embrace innovation. This is demonstrated, for instance, by:
- our leadership in the debate on the trading of Greenhouse Gas Emissions, which should lead to new markets in tradable products, and;
- the recently announced agreement between the Sydney Futures Exchange and Dow Jones to launch new Asian sharemarket indexes -- APELS or the Asia Pacific Extra Liquid Series -- in the second quarter of this year.
And the time zone we share with Asia gives companies in Australia the edge in servicing Asian markets quickly and cost-effectively.
This was demonstrated beautifully during the launch of the Euro in January, where our time zone advantage over Singapore and Hong Kong enabled Australian forex dealers to be among the first to actively trade the new world currency in a liquid market.
We have a competitive, cost-effective business service industry supporting our markets and supplying legal, accounting, actuarial, insurance, and information technology services.
Overlay these advantages with our world-class regulatory arrangements - many of which were introduced via the ground-breaking Wallis financial system inquiry and Australias attraction becomes more clear.
Infrastructure
We are among the most technologically literate people in the world.
We have the second largest information technology and telecommunications market in Asia after Japan.
Our market penetration rates of the Internet and mobile telephones are among the highest in the world, and
Australia is second only to the United States in per capita ownership of personal computers.
Our people
The quality of our financial markets and commercial infrastructure would be irrelevant without a skilled workforce to drive them.
Australia has that workforce. In fact, our people are highly educated with 45 per cent of working Australians having university, trade or diploma qualifications. This compares with 23 per cent in Singapore. What is more, 30 per cent of Australians with degrees from tertiary institutions also have post graduate qualifications.
And being a multicultural society means many Australians speak more than one language.
In fact, more than 2.4 million Australians speak a language other than English at home and we have more than 800,000 Asian language speakers.
For companies, this translates into the benefits of being able to draw on skilled managerial and technical staff fluent in a variety of regional tongues.
The Sydney Futures Exchange is a case in point its 200 employees speak 37 different languages between them.
Future readiness
And as we head to the new Millennium, Australia can boast it is better prepared than most for the challenges of 1 January 2000.
In terms of Y2k compliance Australia is ranked second in the world only to the USA, according to the respected Gartner Group. This is a creditable achievement.
Our future readiness is also obvious inobvious in our determination to build a 21st century taxation system, something I will touch on in a moment.
Weathering the Asian financial crisis -- Australia comes of age
All of these factors make a compelling case for Australia as an investment destination and as a centre for global financial services.
But the overwhelming proof that Australia has come of age in this respect is our performance during the Asian economic and financial crisis.
It used to be said that if the rest of the world sneezed, Australia caught a cold. We were seen to be at the mercy of economic and financial events.
Last year, with Asia in the grip of recession, the prognosis was particularly gloomy. The consensus among commentators and analysts was that if our economy couldnt perform well when Asia boomed in the early 1990s, then we would truly founder when Asia hit the wall.
Instead we confounded expectations. Not only did we outperform nearly all our Asian neighbours but also the world.
Our economy grew by 5.0 per cent through the year to the September quarter 1998. That was stronger than the US -- an economy hailed for its strong economic growth stronger than the UK and stronger than Germany.
In fact, it was stronger than all the G7 nations; and much stronger than the OECD as a whole.
We experienced this boom growth at a time of historically low inflation. Inflation has averaged around 1 per cent per annum during the past three years. Low inflation has kept interest rates low, encouraging strong growth in business investment.
Employment grew by 2.1 per cent last year. Unemployment was steady at 7.5 per cent in January, its lowest rate since September 1990.
Putting this another way, there are now almost 400,000 more Australians employed today than when the Coalition came to office three years ago.
In a time of international economic and financial uncertainty, Australia has demonstrated exceptional resilience to the unfolding economic crisis.
The Governments reforms
This Government is proud of these economic achievements
And we are proud because these achievements have been due largely to the policies weve put in place over the last three years.
We eliminated the Budget deficit in fact, the Commonwealth has not borrowed in net terms for three years and is, in fact, now paying money back into capital markets.
We introduced an independent framework for monetary policy, which has enhanced policy credibility in financial markets.
In addition, reforms in product markets through tariff reductions and increasing competition in areas not previously exposed to international trade have kept downward pressure on inflation.
We are now seeing evidence of an upward shift in productivity growth, the reward for past reforms, which gives confidence in the future robust performance of the economy.
Our efforts have been recognised by the International Monetary Fund, which said in its NovemberNovember, Public Information Notice: "Growth has been underpinned by an improved economic policy framework and regulatory reforms that have prompted investment and boosted activity."
The IMFs deputy managing director Stanley Fischer said: ".... the policy framework has changed amazingly. You have a very coherent monetary policy now; and youre running a fiscal surplus now. There are very few countries running a fiscal surplus."
Recent events in Asia have highlighted the cost to be paid for inadequate corporate governance and prudential regulations.
Corporate governance and prudential supervision are at the forefront of issues being confronted by the IMF and APEC Finance Ministers.
Australia is playing an active role in taking these issues forward. And we can do so because we are at the forefront of regulatory reform.
Following the Wallis inquiry, the Government introduced an improved regime for financial system regulation at the Commonwealth level, which came into effect on 1 July last year. We moved unnecessary regulatory barriers to contestability, competition and efficient market operation. These reforms maintained the stability of the Australian financial system and strengthened consumer protection.
They were also hailed by the International Monetary Fund as "a package of path-breaking reforms, which puts Australia at the forefront of international practice".
We are taking our regulatory prowess to the world. Government agencies like the Australian Bureau of Statistics, the Australian Securities and Investment Commission and the Australian Competition and Consumer Commission are actively supporting the rebuilding of Government regulatory institutions across Asia.
In addition, the Corporate Law Economic Reform Program will further modernise our corporate law and harmonise the regulation of our financial services industry with improvements in a range of areas including takeovers and conduct and disclosure practices.
Future reforms
As impressive as this reform record is, there is still more to be done to cement our position as an attractive investment destination and as a centre for global financial services.
The key to our ongoing reform process- and our future readiness - is the long overdue restructure of the tax system.
The current taxation system, with its genesis in the 1930s, has been unable to keep up with changes in the structure of the Australian economy and now, is showing signs of fragility. In fact, it is bed-ridden.
This Government is building a 21st century taxation system. Indeed, it represents the single most significant change to our international competitiveness since Federation. It means that by the end of 2000, Australia will have the most modern and progressive tax system in the OECD.
Tax reform will abolish $3 billion a year on a range of inefficient financial services taxes such as FID, debits tax and stamp duty on marketable securities.
We will also remove $4.5 billion a year in taxes on exports, including exports of financial services, which will be GST-free in line with the treatment of other exporters.
Fixing the tax system is part of the integrated policy framework necessary to ensure stronger economic and employment growth and rising living standards.
We will then move on to the reform of business tax. John Ralphs Review of Business Taxation, to report by 30 June, will form the basis of a new business tax regime.
It will make recommendations on the fundamental design of the business income tax system, ongoing policy making, drafting of legislation and the administration of business tax.
Investment facilitation
The Government believes that making Australia an attractive destination for international investment depends fundamentally on getting the economic foundations right.
It goes without saying that investment incentives will never compensate for inadequacies in the overall economic framework.
At the same time, the Government recognises the importance of encouraging international investment through carefully developed programmes aimed at facilitating investment in modern, high growth industries.
In this area, the Government offers a sensible range of options.
Invest Australia, for example, is the national agency promoting Australia as an investment location. It facilitates major investment projects and provides a range of services to companies seeking to establish operations in Australia.
Specific incentives under the Regional Headquarters Program encourage companies to make Australia their servicing base for the Asia-Pacific region. These include tax incentives and help with other matters, such as immigration for executives.
We have introduced legislation to increase the attractiveness of the tax regime for Offshore Banking Units. Until now, only banks and authorised foreign exchange dealers have been able to access the tax concessions of establishing Offshore Banking Units.
These concessions exempt certain offshore parties from Australian tax and provide a 10 per cent tax rate on the taxable incomes of OBUs.
The Government is extending eligibility to funds managers, life insurance companies and providers of custodial services. This will increase mobility of funds and facilitate greater competition for offshore business.
We have also taken steps to open up the corporate debt market to international investors. Legislation is now before Parliament to widen the exemption from the 10 per cent interest withholding tax on Australian-sourced interest paid to offshore investors.
Until now, the exemption has only been available to companies issuing debentures and paying interest outside Australia. Under the Governments legislative changes, companies will be able to issue debentures in Australia without the issue losing its eligibility for the tax exemption.
This reform will facilitate greater liquidity in the Australian corporate debt market. In fact, these reforms are hoped to double the size of the market over the next few years.
It could also flow on to home loan interest rates. Allowing lenders to access the cheapest funds free of withholding tax should increase competitive pressures in domestic lending markets.
Conclusion
Today, Australia is in an excellent position to stake its claim as a major financial centre and investment destination.
We offer political stability, a strong financial services sector, excellent commercial infrastructure, and a skilled workforce.
Overlaying those enduring advantages is the evidence, our recent emergence, in the face of such regional upheaval, of the resilience and adaptability of the Australian economy.
Reinforcing the entire structure is a policy and regulatory framework implemented by the Howard Government to ensure the Australian economy and financial system can withstand difficult times, as well as grow in prosperous ones.
That is what truly inspires investment confidence -- resilience and consistency of performance.
As the Asian experience has shown, fortunes can swiftly change if you take your eye off the regulatory ball.
Right on our doorstep is a graphic illustration of what complacency can bring.
The Howard Government is pressing ahead with its reform agenda. We are ever vigilant. We are keeping a close eye on international trends and have demonstrated our preparedness to implement the policies, which allows Australia to take advantage of them.
Together, in partnership, we will ensure Australia is given every opportunity to prove itself as a centre for global financial services and a AAA investment destination.